A PI agency takes a $5,000 retainer for a 5-day surveillance case, logs 38 hours of tail time, 420 miles, a $400 subcontractor investigator for night coverage, and $180 in database and court-record fees advanced on the client's behalf. At month-end the owner has $5,000 in the bank, $3,200 in timesheets, and a client asking for an accounting of the retainer. Without job costing, trust accounting, and recovered-expense tracking, the answer is a guess — and in many states, a compliance violation.
A PI firm is a professional-services, fleet-light, trust-account business that happens to carry cameras. State licensing and bonding, client retainers that may be unearned or in trust, per-case job costing, surveillance mileage, covert equipment, and subcontract-investigator classification shape the ledger far more than generic "consulting income."
Retainers: Unearned Funds, Trust Accounts, and When Revenue Is Earned
Start with the legal character of the retainer — not the amount.
Three flavors, three ledgers:
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True retainer / engagement fee (earned on receipt, nonrefundable). Paid to secure availability, not tied to hours. Rare in PI work and must be explicitly nonrefundable and reasonable in the engagement letter. If it is truly earned on receipt, recognize as revenue immediately — but most PI "retainers" are not this.
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Advance fee / advance payment (unearned, client funds until earned). The typical PI retainer: "advance against hourly surveillance at $110/hr plus expenses." This is deferred revenue — or, where state PI or lawyer-adjacent rules require it, a client trust / IOLTA-like segregated account. You hold the money; you earn it as you perform.
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Evergreen retainer. Advance fee replenished to a fixed balance (e.g., always $3,000 on deposit). Treat each replenishment as another advance.
For the common advance-fee case:
At receipt — $5,000 advance:
Debit Cash — Operating (or Cash — Client Trust, if required/used) $5,000
Credit Deferred Revenue — Client Advances / Trust Liability $5,000If your state or engagement requires a segregated client trust account (increasingly common for PI firms that hold funds), use a separate Cash — Client Trust asset and a matching Client Trust Liability — the cash is not yours until earned, and commingling is the fastest way to lose a license. Even where not required, segregating unearned retainers is the practice that prevents spending next week's surveillance hours today.
As performed — 12 hours surveillance at $110/hr:
Debit Deferred Revenue / Trust Liability $1,320
Credit Revenue — Surveillance $1,320If you advance a database pull or filing fee on behalf of the client (see recovered expenses below), that is not your revenue — it is a receivable against the advance or a billable expense recovery.
Month-end discipline:
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Per-client deferred / trust roll-forward.
Beginning balance + advances received − revenue earned (hours × rate) − refunds = ending liability. Reconcile to the trust bank balance — every dollar of liability must be matched by cash in the trust account. -
Engagement letter controls the accounting. State explicitly: (a) whether the retainer is refundable, (b) the hourly rate and what counts as billable (surveillance, travel, report writing, court time), (c) expenses advanced vs. included, and (d) refund mechanics for unearned balances. An ambiguous letter creates an ambiguous ledger.
State Licensing, Bonding, and Insurance — The Compliance That Shows Up as Cost
More than 40 states license private investigators; operating without one can be a misdemeanor or felony depending on the state. Licensing shapes both permission to operate and the bookkeeping.
Typical ledger touchpoints:
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PI agency license + qualifying-agent / individual investigator licenses — Per entity and per investigator, often with continuing-education, background-check, and firearms endorsements. Fees are period costs; renewal dates are calendar obligations — a lapsed license can void a case's admissibility and trigger client refunds.
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Surety bond ($5,000–$50,000 common) or liability insurance — Many states require a bond or general liability / errors & omissions coverage as a condition of licensure. The bond premium ($100–$600 annually per $10k depending on credit) is an expense; the bond itself is not an asset. Premium history and claims affect renewal and personal indemnity.
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Armed / vehicle endorsements, local permits — Some jurisdictions require separate permits for GPS deployment, drone-assisted surveillance where authorized, or access to restricted databases — each with fees and renewal cycles.
Bookkeeping setup:
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Licenses, bonds, CE, and insurance →
Regulatory & Complianceexpense, tagged by licensee and expiry. A calendar 60 days before each expiry is not optional. -
If you hold client funds in trust, map the trust account in the chart of accounts as a separate cash + liability pair — not just a tag on operating cash. Bank reconciliation for the trust account is a separate, monthly, reviewed reconciliation.
Per-Case Job Costing: The Case Is the Job
Mix two surveillance cases in one P&L and neither is understandable. The case is the cost object.
What to job-cost per matter:
- Investigator hours (employee vs subcontractor — see classification below)
- Surveillance mileage and travel (per diem, tolls, parking)
- Database, court-record, and public-records fees (advanced or absorbed)
- Equipment usage (covert cameras, GPS where lawful, audio) — either as direct consumption or via an hourly equipment rate
- Report writing, video redaction, and court / deposition time
Minimal time + expense sheet per case:
Date | Investigator | Hours | Rate | Mileage | Miles rate | Advances | Subcontractor | NotesRevenue recognition per case:
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Time-and-materials cases (most surveillance): revenue =
hours × raterecognized as performed, plus recovered expenses recognized as revenue when the client is obligated to reimburse (see below). Realization matters — billed vs. collected diverges when a client disputes hours. -
Flat-fee / deliverable cases (background investigation package for $2,200): allocate the fee across deliverables if bundled (e.g., database search + field check + written report). Recognize per deliverable as completed, not at sale.
A case P&L you can run the day before you invoice:
Revenue earned (hours × rate + recovered expenses)
− Direct labor (employee hours × loaded cost + subcontractor)
− Direct expenses (mileage, databases, advances)
− Allocated indirect (vehicle, equipment, insurance slice)
= Case contribution
÷ Billed amount = Realization %If realization is consistently below ~85–90%, scope or rate is wrong — not effort.
Recovered Expenses vs. Absorbed Costs — Don't Expense What the Client Owes You
Two categories, two treatments:
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Client-reimbursable advances — Database pulls (TLO, IRB), court-record retrieval, DMV records where lawful, travel advanced at client request. You pay the vendor, you bill the client.
At advance: Debit Receivable — Client Advances (or Advances Paid) $X Credit Cash $X At billing: Debit Accounts Receivable — Client $X Credit Revenue — Recovered Expenses (or contra-expense if presented net) $X Debit Deferred / Trust Liability (if drawn against retainer) $X Credit Accounts Receivable $XPresentation (gross vs net) is a policy — pick one and disclose it. Most PI firms present recovered expenses gross (revenue + expense) when they are the obligor; netting hides volume that matters to a buyer or lender.
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Firm-absorbed costs — Mileage beyond what the contract recovers, extra hours to get usable footage, equipment wear — those are your COGS/operating expense. Absorbed cost trending up is a pricing signal: your rate or scope no longer matches reality.
Reconcile every advance to its billing before you refund an unearned retainer. Refunding a retainer that already funded un-billed advances is a classic month-end error.
Surveillance Mileage and Vehicle Costs — Log It or Lose It
Surveillance is mileage-intensive and log-sensitive.
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Contemporaneous log required. IRS requires date, destination/purpose (case number, not "surveillance"), and miles. A year-end estimate is not deductible. A phone app that logs start/stop with case tag meets the standard; a notebook with case numbers does too — consistency is what matters.
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Actual vs. standard mileage. Standard mileage (≈ $0.70/mile for 2025; 2026 rate announced each December) is simple for a personal vehicle used for surveillance. Once you claim Section 179 or bonus on a vehicle, you generally must use actual expense (fuel, insurance, depreciation, repairs) for that vehicle for its life. Many agencies run actual on primary surveillance vehicles (high-mileage, capitalized) and standard on an admin vehicle.
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Mileage billing vs. mileage deduction. The rate you bill the client ($0.65–$0.85/mile typical) and the rate you deduct are different concepts. Bill at your contract rate; deduct at the IRS rate/method you elected. The spread is part of margin — track it per case.
Equipment: Cameras, Cover Gear, Covert Kits — Capitalize or Expense Deliberately
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Small gear (covert cameras, audio recorders, lenses under the capitalization threshold) — Expense as
Equipment & Supplieswhen placed in service, tagged per case if consumable. -
Vehicles, surveillance vans, and major kits — Capitalize the vehicle plus surveillance upfits (console, power, window tint compliant with state limits, lockboxes) as one asset or vehicle + upfit with aligned life. Section 179 up to $1.25M (indexed, phase-out at $3.05M) and 40% bonus in a 40% bonus world apply to new and used surveillance gear and vehicles (OBBBA 100% restoration for property placed in service after Jan 19, 2025 through 2029 is still in flux). Section 179 is limited by taxable income; bonus is not.
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Chain of custody matters for the ledger. A camera's serial tied to an asset ID that ties to the cases it shot is both bookkeeping and evidence hygiene. Keep the register.
Subcontract Investigators: 1099 vs W-2 — Controlled Surveillance Is Usually Employment
The most expensive classification error in this industry is treating regular surveillance investigators as contractors because "they're 1099."
Employee (W-2) indicators: You set the schedule, assign cases, require specific methods/reporting, provide the vehicle and surveillance gear, set the hourly bill rate, and restrict work for competing agencies. Most agency surveillance fails the contractor test on these facts, especially under state ABC tests.
Independent contractor (1099) indicators: Investigator sets own hours and rates, brings own clients and gear, has multiple agency clients, carries own license and insurance, and you lack the right to control how they conduct surveillance beyond the deliverable.
Risks of misclassification: back payroll tax, workers' comp, unemployment, overtime, and a licensing-board complaint where the engagement letter conflicts with reality. If you direct start time, position, and check-in cadence, you likely direct employment.
Guardrails:
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Track 1099-NEC for contractors paid $600+ (the proposed $2,000 threshold for 2026 is not yet law — follow the IRS notice for the filing year). Get a W-9 before first payment; no W-9, no dispatch.
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For W-2 investigators, separate surveillance hours, travel, report writing, and court time — they margin differently and utilization targets differ by type.
The Two KPIs That Decide Whether You Grew or Just Stayed Busy
Realization rate:
Realization = Amount collected (or collectible) ÷ Amount billed at standard ratesIf you discount hours to keep a client, realization drops before revenue does. A firm at 94% realization is healthy; at 78%, rate or scoping is broken. Track per investigator — a high-hour, low-realization investigator is a pricing problem disguised as productivity.
Recovered-expense recovery rate + case contribution:
Recovery rate = Recovered expenses billed ÷ Advances paid
Case contribution = Revenue earned − direct labor − direct expenses − case-allocated indirectA case with positive gross profit but negative contribution after allocated vehicle/equipment cost is subsidized by other cases — the signal to raise the retainer, narrow scope, or decline.
Supporting weekly cockpit:
- Hours per investigator (billable vs non-billable, surveillance vs report writing)
- Retainer/trust burn:
deferred/trust balance ÷ avg weekly burn = weeks of coverage— when coverage <1.5 weeks, collect the replenishment before you schedule - Mileage and advances per case vs budget
- Collection lag (billed → collected days) — retainer cases should collect in days, not months
A Close That Fits an Investigations Calendar
Per case, as worked: Log hours/mileage/advances to the case the same day — dispatch without same-day time entry is unbilled time.
Weekly: Roll forward retainers/trust per client (beginning + received − earned − refunds = ending) and reconcile to bank. Review realization and recovery rates; invoice or draw earned fees.
Monthly: Tie subcontractor hours to 1099-NEC list, reconcile vehicle/equipment reserves, review licensing/bond renewal calendar, and post case P&Ls. A lapsed license that month can void next month's revenue — the calendar is a control.
The Bookkeeping Connection
PI work rewards the habit that makes plain-text accounting powerful: every retainer, hour, mile, database pull, and refund is a dated, case-tagged event — not a month-end adjustment. When the trust liability, the case cost, and the recovered expense live in the same version-controlled ledger, the story from "client funded $5,000" to "38 hours delivered, $1,820 retainer remaining, $180 advanced, 420 miles" is traceable and explainable to a client, a court, or an auditor who asks where the money went.
Simplify Your Financial Management
Running a solvent PI firm is a trust-account problem and a job-costing problem before it is a marketing problem. Beancount.io gives you plain-text, version-controlled accounting where retainers, trust, per-case costs, mileage, equipment, and contractor vs employee remain explicitly linked — no hidden schedules, no vendor lock-in, and AI-ready when you want help turning last week's surveillance log into next week's cash. Get started for free and make every case pay for itself.